Serco Group H1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Strong first-half performance: Revenue rose 4% on a constant-currency basis to £2.5 billion, underlying operating profit increased 8% to £157 million, and margin reached a 10-year high of 6.2%. Free cash flow was £65 million, with management reiterating full-year revenue, profit, and cash-flow guidance.
  • Positive Sentiment: Serco increased its 2026 share buyback to £150 million, including an additional £75 million for the second half, taking total expected shareholder returns for the year to just under £200 million. Leverage remained low at 0.7x EBITDA, preserving capacity for acquisitions and further returns.
  • Positive Sentiment: Growth prospects remain supported by a record £12.8 billion group pipeline, retention above 95%, and strong defence momentum, including 10% organic growth across the defence business. North America’s pipeline exceeded £8 billion, while the U.K. and Europe benefited from a 30% increase in defence revenue and successful contract mobilizations.
  • Negative Sentiment: Asia-Pacific revenue fell 14% following the exit from the Australian immigration contract, while Middle East revenue declined 25% amid regional conflict and contract transitions. U.K. and European immigration volumes also remain a headwind, although management said the impact is currently smaller than previously expected.
  • Neutral Sentiment: Procurement delays continue to affect the timing of U.S. federal awards, with £3.2 billion of bids awaiting decisions and midterm elections approaching in November. Management expects conditions to improve gradually but emphasized that its 2026 guidance does not depend on a recovery in the U.S. procurement cycle.
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Earnings Conference Call
Serco Group H1 2026
00:00 / 00:00

Transcript Sections

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Anthony Kirby
Group Chief Executive at Serco

Good morning, and thank you to everyone who has joined us for the presentation of Serco's 2026 half-year results. Whether you're with us here in person today or joining via the live stream, you're very welcome. I'm Anthony Kirby. I'm the proud Group Chief Executive of Serco, and I'm delighted to be joined by Mark Reid, our Chief Financial Officer. I was very pleased that Mark joined the business, the Board, and the executive team back in early March. This morning, I'll begin with an overview of our progress and performance. We'll take you through the financials in more detail with Mark, and then I'll return to discuss the outlook across our core geographies, the strong structural drivers that reinforce the need for trusted partners like Serco, and how we are positioning the business to deliver safe, sustainable growth in an ever-changing external landscape.

Anthony Kirby
Group Chief Executive at Serco

Before we go any further, I must refer you to the disclaimers in your pack. Let's start at the top. Thanks to my 50,000 colleagues around the world, we've delivered another strong performance in the first half, reflecting disciplined execution and continued progress against our strategy. Through good operational delivery, productivity improvements, and disciplined cost control, we have increased profitability and delivered margin improvements that we can be proud of. We've continued to deliver good progress across our strategic pillars with retention once again north of 95%, a growing pipeline, and a leaner, more efficient organization supporting our ability to deliver against our 2026 guidance. We also remain confident in the outlook across all of our core geographies.

Anthony Kirby
Group Chief Executive at Serco

Whilst market conditions are evolving, underlying demand for the critical services that we provide continues to be underpinned by the same long-term structural drivers that we've been talking to you about for many years, the four forces as we describe them. During the period, we've continued to take deliberate action to better position Serco for the future. Building on the sector simplification announced at the full year, we're refining our operating model to drive greater focus, efficiency, and long-term growth. As a result, we're increasing our share buyback to GBP 150 million for the full year, following the GBP 75 million we announced and executed in the first half whilst reiterating our full-year guidance. Turning to the numbers, which I'm proud to present. As you can see, we've delivered revenue up 4% on a constant currency basis, including strong organic growth of 10% in our defence business.

Anthony Kirby
Group Chief Executive at Serco

Free cash flow of GBP 65 million, keeping us on track for full-year cash conversion of at least 80%. Order intake representing a book to bill of around 100%. Underlying operating profit of GBP 157 million, delivering a 10-year high margin, which I'll come back to shortly. These results demonstrate the resilience of our business and our ability to deliver sustainable growth over the years ahead. I'd like to spend a few moments highlighting the progress that we've made against our three mutually reinforcing priorities of growth, competitiveness, and operational excellence. As many of you will know, I'm absolutely focused on growth, safe, sustainable growth in our revenue, our profit, and our margin. During the period, we've made good progress growing our pipeline to a record high of GBP 12.8 billion, securing around GBP 2.5 billion of order intake, maintaining strong retention rates across the group.

Anthony Kirby
Group Chief Executive at Serco

This reflects both our ability to win new work and expand the great business that we already have. That gives me confidence in growing the business over the medium term. Turning to competitiveness. When I stood here last year, I said that while Serco was a very strong business, there were opportunities to make us simpler, more focused, and more efficient. At the full year, I spoke about the changes we were making to simplify our sector structure and reduce unnecessary complexity. Since then, we've continued to embed those changes, helping to reduce our overhead costs. This is about creating a business that can respond more quickly to customer needs, allocate resources more effectively, and position ourselves to capture future opportunities.

Anthony Kirby
Group Chief Executive at Serco

On operational excellence, we've continued to deliver complex services reliably across our portfolio, while successfully mobilizing major programs and investing in capabilities that will support our future performance. Since January, mobilization activity contributed to strong organic growth, including 7% growth in the U.K. and Europe, whilst continued investment in technology and innovation is improving both service quality and productivity. Across the business, we have multiple live applications of AI supporting both customer solutions and internal process improvements. In Asia-Pacific, we're using AI-enabled strategic workforce planning tools to improve resource allocation and predict future strategic requirements. In North America, we're using AI to help identify and qualify opportunities, strengthening our business development capability and supporting the growth of our record pipeline.

Anthony Kirby
Group Chief Executive at Serco

In the U.K., we're using AI services to automate asset monitoring, helping to improve operational efficiency and service performance. We've also continued to make Serco a safer place for our colleagues, with 15% fewer safety incidents resulting in time off work than we saw in the first half of 2025. More importantly, that represents a 40% reduction over the past three years. We now have more than 640 apprentices across our U.K. business, and we were exceptionally proud recently to be named U.K.'s top employer for veterans, reservists, and military families. Whilst there is always more that we can do, there's been good progress across all parts of our approach to executing our strategy. One of the most encouraging aspects of our performance has been the continued improvement in margin, despite a number of headwinds.

Anthony Kirby
Group Chief Executive at Serco

This is the result of a deliberate strategy that has been executed consistently over a number of years. We strengthen the quality of our portfolio through disciplined contract selection, improved operational execution, a continued grip on governance, targeted acquisitions, and an increasing focus on complex service lines. That, coupled with greater exposure to higher value markets and stronger positions in defence and North America. The result is a sustained improvement in our margin profile. Importantly, this progression is being driven by an improvement in the quality of our business rather than any single action or short-term initiative. I'm pleased with the progress that we've made, and our focus remains on sustaining and further improving that performance over the years ahead. With that, I'll now hand over to Mark, who will take you through our financial performance in more detail. Grab your popcorn, sit back, and listen intently.

Mark Reid
CFO at Serco

Thank you, Anthony, and good morning to everyone. I'm delighted to be here, standing in front of you presenting my first Serco set of earnings. The last six months have flown by. I've spent a great deal of time getting to know the business. I'm very pleased with what I've experienced so far. Great culture, dedicated colleagues, and a huge opportunity with robust delivery, which I can hope you see as you go through these results. Let me start with a few observations. Firstly, Serco is underpinned by good market dynamics. You see this in the strong performance the team's delivered in 2025 and how that momentum has continued into half one 2026. It has become more and more clear to me that the governments around the world need partners like Serco as they prioritize quality outcomes and value for money the citizens demand.

Mark Reid
CFO at Serco

Secondly, I've been impressed by the depth and breadth of the operating excellence, and this has been clear in the outcomes we have delivered for our customers. Take the electronic monitoring service, for example. We have transformed a service monitoring record numbers of users while delivering against all the performance measures that the customer set. Thirdly, working with the many fantastic colleagues I've met so far has been inspiring. I've been able to collaborate at pace with our leadership team, and hopefully Anthony agrees, our CEO-CFO partnership has got off to a good start. Now turning to the strong half one performance. I'm delighted to present revenue increased by 4% to GBP 2.5 billion, including 2% organic growth. Underlying operating profit increased by 8% to GBP 157 million, with margin improving by 20 basis points to 6.2%. As Anthony noted earlier, our profit margin improved, has been an impressive long-term trajectory.

Mark Reid
CFO at Serco

Profit growth was delivered by a full-period contribution from MT&S and improved contract outcomes including electronic monitoring that I mentioned earlier, and lowered corporate costs and wage efficiency actions. These more than offset the [inaudible] headwinds from the exit of the Australian immigration contract, lower immigration in both U.K. and Europe, and higher U.K. National Insurance cost. Earnings per share increased by 6% and the Board has declared an interim dividend of GBP 0.016 which is up 10% year-over-year. Cash generation continues to be a strength of the business. Free cash flow was GBP 65 million and trading cash conversion at 74%. We remain on-track to deliver at least 80% trading cash conversion for the full year. Our balance sheet remains strong with leverage of 0.7x EBITDA even after significant progress on the share buyback at half-end close.

Mark Reid
CFO at Serco

I reiterate the optionality this gives us on capital allocation shortly. Reflecting our confidence today, we have announced the doubling of our 2026 buyback to GBP 150 million, with the additional GBP 75 million to be completed by the end of the year. Combined with dividends paid during the year, this will take our total capital return to shareholders in 2026 to just under GBP 200 million. Overall, this is a strong first half performance with revenue growth, further margin progression, good cash generation, a robust balance sheet, and continued strong shareholder returns. I'll now turn to provide a bit more color around each of the divisions. First of all, to North America, which continues to be an important driver of growth and value creation for the group. Revenue increased 8% to GBP 775 million, supported by a full half year contribution from MT&S.

Mark Reid
CFO at Serco

There was good momentum in defence, which saw 4% organic growth, including additional infrastructure work for the U.S. Army and Space Force at the Pituffik Space Base in Greenland. This was partially offset by lower activity levels in our citizen services following the expected reductions in case management volumes on our CMS contract and the conclusion of an aviation contract in the U.S. Underlying operating profit increased by 10% to GBP 84 million with margin progression to 10.8%. The increase reflects a strong revenue growth, a focus on contract profitability, and the benefit of contracts moving from mobilization to the operational phase. Order intake was GBP 0.7 billion, with a book-to-bill ratio of around 90%. As expected, procurement delays across parts of the U.S. federal market continued into the first half and affected the timing of some of these awards.

Mark Reid
CFO at Serco

Win rates remained healthy at 46%, and the new business were around 80% for retentions. We're seeing progress on a number of important opportunities. Several contract protests have now been resolved, and we have around GBP 3.2 billion of bids awaiting adjudication. This creates the conditions for improving environment through the second half and into next year. Looking further ahead, the pipeline has strengthened significantly, increasing more than 60% to over GBP 8 billion. Defence accounts for the majority of these opportunities, reflecting sustained increases in Pentagon spending and national security priorities. As Anthony will outline, this underpins our confidence in the continued growth potential of the North American region. Moving now to the U.K. and Europe, which has an excellent organic growth of 7%.

Mark Reid
CFO at Serco

Growth was led by defence, with revenue increasing by 30%, reflecting the mobilization of our Royal Navy maritime support and vessel replacement contract, together with additional activity at the Defence Academy. Citizen services also delivered good growth, and in the period, we were delighted to begin delivering BBC audience services. Progress was more limited in justice and immigration, where we saw a reduced immigration activity, both in the U.K. and in Europe. Underlying operating profit increased by 7% to GBP 84 million, with margins remaining resilient at 6.2%, despite around GBP 5 million of higher National Insurance costs and the expected headwinds from lower immigration activity. Profitability benefited from the strong ramp-up in defence and improved outcomes with justice, particularly on the electronic monitoring contract, where performance and productivity continue to improve. Order intake was GBP 1.2 billion with a book-to-bill ratio of around 90%.

Mark Reid
CFO at Serco

Retention rates were particularly strong at over 95%, including several sizable contract extensions in citizen services. We also secured a number of new business awards from the U.K. Ministries of Defence, Justice, and the Home Office, reinforcing the continued demand for our services. Finally, the pipeline stands at about GBP 3.8 billion, while lower than the GBP 5.8 billion at full year as a result of adjudications, we have sight of several large deals that are set to be qualified. Demand remains very robust in the U.K. and in Europe. Turning now to Asia-Pacific, where the first half performance reflects the Australian immigration contract exit alongside progress in strengthening the platform for future growth. Revenue was down 14%, primarily driven by previous year impacts, namely the conclusion of the immigration contract and disposal of our Hong Kong business.

Mark Reid
CFO at Serco

This was partially offset by growth in defence, progress on a number of citizen service contracts, the commencement of the Justice Transport Services contract in Victoria. As expected, underlying operating profit declined in the period, with immigration contract exit reducing profit by around GBP 9 million on its own. Further operational efficiencies and workforce optimization mitigated some of this impact. We're encouraged by the progress we have made on growth. Order intake for the period was GBP 0.6 billion, resulting in a very strong book-to-bill ratio of just shy of 190%. We signed two significant extensions for the Adelaide Remand Center and Acacia Prison in Western Australia, where we secured a significant expansion of our services. We also retained the Australian Defence Force Health Services contract for a further year to mid-2027. These outcomes help demonstrate both our improved customer relationships and our ability to retain strategically important work.

Mark Reid
CFO at Serco

The pipeline remains stable at approximately GBP 0.7 billion, with a number of opportunities progressing across all three sectors. Let's turn to the Middle East, where the first half performance was resilient in a challenging environment. Revenue was GBP 67 million, down 25% compared with the prior period. The reduction was driven by several elements, including transitional contracts into the Mubadala strategic partnership and volume-related impacts of the regional conflict. Underlying operating profit reduced by 12% to GBP 6 million. Despite the lower revenue base, margin improved by over 100 basis points to 8.5%. This reflects the Mubadala partnership and benefits of target operational efficiencies, which is better positioning the business for profitable growth as the market conditions improve. Order intake in the first half was low and was inevitably impacted by the regional disruption.

Mark Reid
CFO at Serco

We are very pleased to see the Mubadala partnership secure several contracts worth almost GBP 60 million, the pipeline currently stands at approximately GBP 0.3 billion. This is lower than last year, this reflects the reductions largely because of adjudications and several larger opportunities removed or delayed related to canceled bids. The Mubadala partnership continues to broaden our access to future opportunities and provides an attractive platform for sustainable long-term growth in the region. If we turn to cash flow and the balance sheet. Cash generation remained good, with free cash flow at GBP 65 million and trading cash conversion of 74%. This is lower than the exceptionally strong comparable period last year, it was in line with our expectations and keeps us on track to deliver at least 80% trading cash conversion for the full year.

Mark Reid
CFO at Serco

Working capital was an outflow of GBP 41 million in the period, compared with an outflow of GBP 14 million in the first half of 2025. This primarily affects the effect of the strong outperformance at the end of 2025, as we set out at the time, and not indicative of any change in underlying cash performance. Turning to the balance sheet, adjusted net debt was GBP 228 million, only GBP 22 million higher than the position at the end of 2025, despite returning significant capital to shareholders during the period. This included GBP 58 million of the GBP 75 million share buyback program completed by the 30th of June and GBP 30 million of dividend payments. Strong cash generation has therefore substantially funded those shareholder returns while maintaining a very robust financial position. Leverage was around 0.7x EBITDA at the period end and remains below our target range of 1x-2x.

Mark Reid
CFO at Serco

The balance sheet continues, therefore, to provide substantial capacity to support organic investment, disciplined bolt-on acquisitions, and further shareholder returns under our capital allocation framework. Our framework is unchanged and supported by the three core strengths of Serco: significant cash generation, a capital-light business model, and a strong balance sheet. Our first priority is investing organic growth. During the year, we have continued to strengthen our business development capability through expanded specialist sales teams. Confidence in the business and outlook. The board has declared an interim dividend of GBP 0.016 per share, up 10% year-over-year. Third, we continue to value bolt-on acquisition opportunities that enhance our capabilities and our organic growth potential. We have increased focus, resources in this area, and have a strengthened pipeline of opportunities. As always, we will maintain the same financial discipline in this area. Finally, we have surplus capital.

Mark Reid
CFO at Serco

We will return it to shareholders consistent with that. We have announced a further GBP 75 million buyback for the remainder of 2026. Let me finish with our guidance for 2026. Following the strong first half performance, we are reiterating our guidance for revenue, profit, and free cash flow. The only changes are to net finance costs, which are now expected to be slightly lower than previously guided, and the year-end net debt position, both of which reflect the additional GBP 75 million buyback announced today. Overall, we enter the second half with good visibility from our order book, a record pipeline, excellent retention rates, strong momentum across our strategic priorities, and as a result, we remain confident in delivering our full-year expectations. Finished my first six months. I'm very pleased with the state of the business. Markets continue to be supportive.

Mark Reid
CFO at Serco

Our teams execute with professionalism and precision that delivers great customer outcomes. I see multiple opportunities to support our growth and ambition, including cost efficiencies, self-funded organic investments, and bolt-on M&A, which I'm sure will continue to drive strong investor returns. With that, I'll hand over to Anthony.

Anthony Kirby
Group Chief Executive at Serco

Mark, thank you. At the full year, I talked to you about our strategy to simplify and focus the business around our core sectors of defence, justice and immigration, and citizen services. Today, I'd like to a similar approach through a geographic lens, focusing on our core markets. Before I turn to our first geography, I'd like to spend a few moments on why governments around the world continue to partner with the private sector and why we believe that those structural drivers will remain in place for many years and decades to come. Whilst the specific challenges facing governments may differ from country to country, the underlying pressures remain remarkably consistent the world over. For many years, we have used our four forces framework to explain why demand for publicly controlled and privately operated partnerships continue to grow. The first is growing costs.

Anthony Kirby
Group Chief Executive at Serco

Governments around the world continue to face inflationary pressures and rising demand for public services. The second is voter intolerance of higher taxes. Citizens remain resistant to higher taxation, with the tax burden in many parts of the world already at an all-time high. Third, expectations keep rising. Whether it's in defence, justice and immigration, or citizen services, people increasingly expect services to become more responsive, more personalized, and more digitally enabled. Finally, governments must continue to balance the public expenditure against competing priorities. Collectively, these forces create intense pressure on governments to deliver more and better for less. Whatever the policy environment, decisions ultimately need to balance service quality, operational resilience, and value for taxpayers. Faced with these pressures, governments increasingly look for ways to access specialist capability, improve productivity, and importantly, deliver better outcomes whilst retaining control of critical public services.

Anthony Kirby
Group Chief Executive at Serco

In fact, additional cost, reinforcing the importance of assessing delivery models on the basis of outcomes, efficiency, and value for money. Governments have long partnered with the private sector to help address exactly these kinds of challenges. At Serco, we bring operational expertise, innovation, and global best practice to help customers improve productivity, manage risk, and deliver better public services on their behalf. Importantly, this is about value rather than cost alone. Independent research continues to demonstrate that publicly controlled services delivered by the private sector are often up to 15% more cost-efficient. [inaudible] the customers seek is why organizations like Serco remain well-placed to support governments around the world. When you combine that with our ability to develop, deploy innovation and technology at pace, it is clear why this delivery model will remain important over the long term.

Anthony Kirby
Group Chief Executive at Serco

Those structural drivers underpin a geographically diverse portfolio of ours, spanning more than 20 countries and a total addressable market of over GBP 900 billion. We believe the demand created by those four forces will continue to grow over the long term, which is why we have been taking deliberate action to simplify our business and position Serco to capture those opportunities. Our geographic footprint provides resilience. It gives us exposure to different governments, different spending priorities, different procurement cycles, and a broad range of opportunities across our core sectors. Last year, we sharpened our focus of our sector structure, we're taking that one step further by combining our Asia-Pacific and Middle East operations under a single leadership structure. This creates a stronger regional platform, expanding opportunities and strengthening our ability to serve our customers across both regions.

Anthony Kirby
Group Chief Executive at Serco

It also allows us to bring the expertise, capabilities, and lessons learned from the successful transformation of our Asia-Pacific business to the Middle East, while exporting agility, innovation, and pace throughout the broader division. I really do believe that this will help accelerate growth across the region. To North America, the largest government services market in the world, our largest by profit contribution. Underlying demand for our services remains strong, although procurement delays have continued to affect some timing of awards. We continue to see significant opportunities across our key markets. This is reflected in our record pipeline of over GBP 8 billion, reinforcing our confidence in the region's long-term attractiveness. We're now starting to see some early signs of procurement environments moving again, although we are mindful of the midterms approaching in November. In recent weeks, we've seen a number of opportunities progress through the procurement process.

Anthony Kirby
Group Chief Executive at Serco

We now have more than GBP 3 billion of awards submitted and awaiting adjudication, and several long-running protests have now been resolved. Let me bring that and our growth pillar to life with an example. In June, we secured the Comprehensive Error Rate Testing, or CERT for short, contract with CMS. The contract extends a relationship with the Centers for Medicaid and Medicare Services that builds on more than a decade of supporting the largest eligibility healthcare administration program in the world. Through CERT, Serco helps identify improper payments and tackles fraud, waste, and abuse across a healthcare program that supports more than 70 million Americans and oversees more than $1 trillion of annual spending. Importantly, this is not simply contract expansion.

Anthony Kirby
Group Chief Executive at Serco

It builds on the technology-enabled capabilities we've developed over many years in our citizen services business, combining specialist medical expertise, artificial intelligence, and intelligent document processing to improve both outcomes for citizens and efficiency for the government customer. For me, this award is a good example of the direction we're taking the business. It demonstrates our ability to win and retain complex services, deepen long-term customer relationships, and apply technology and domain expertise to solve increasingly important challenges for governments. Turning to the U.K., our second-largest market, the structural drivers that we've already discussed are particularly evident here, reinforcing the importance of productivity, innovation, and getting more from every pound spent, areas where trusted partners like Serco can add real value. Defence is a good example. Across the region, governments are increasing investment in national security and military readiness capability while operating within constrained fiscal environments.

Anthony Kirby
Group Chief Executive at Serco

Through the U.K. Defence Investment Plan, priorities are becoming increasingly clear, with growing focus on personnel readiness, digital transformation, autonomy, and next-generation capability. These are all areas where Serco has deep and strong international track records of delivery. That's reflected in our performance, with defence revenues growing by around 30% in the region during the period, as Mark alluded to earlier, driven by operational excellence, and I'll bring that to life now. We're currently mobilizing the Royal Navy's GBP 1 billion DMS NG program, delivering critical import services across the U.K., bringing 24 new vessels into service while maintaining operational readiness. Importantly, this is about managing complex defence operations and ensuring that the infrastructure is in place to enable frontline capability. The trust our customers place in us is also reflected in the additional opportunities that we continue to secure.

Anthony Kirby
Group Chief Executive at Serco

Earlier this year, we were awarded a new seven-year contract to support the British Army's fleet of more than 500 vessels, further strengthening our position in higher-value defence support services. These awards also reinforce a broader point. As the geopolitical environment becomes more volatile and more threatening, governments continue to invest in national security and military capability. The demand for trusted partners that can help deliver those ambitions efficiently and with operational excellence remains strong. Turning now to Asia-Pacific and the Middle East. APAC is a market where we have a long and established track record of service delivery and trusted customer relationships. Demand remains strong across justice and increasingly attractive in defence. Partnerships such as AUKUS and the Five Eyes alliance continue to support investment in capability, infrastructure, and long-term readiness.

Anthony Kirby
Group Chief Executive at Serco

That's reflected in our recent extension to continue improving health outcomes for more than 80,000 Australian Defence Force members and reservists. In justice, governments continue to face capacity pressures and increasing demand, creating opportunities for experienced providers like us. That's reflected in our performance during the first half, including the exceptional order intake of GBP 600 million, demonstrating the strength of the market. Our longstanding presence, operational expertise, and established customer relationships positions us well as governments address the challenges they face. Alongside this, we continue to see attractive opportunities emerging across the Middle East, and we're pleased, as Mark said, about our partnership with Mubadala continues to perform well, strengthening our position in that region. For me, APAC is a good example of how the actions we have taken over recent years have made us a stronger and more competitive business.

Anthony Kirby
Group Chief Executive at Serco

The performance we're delivering today looks very different to what we were delivering just a few years ago, and this can be seen in the justice sector in Australia, where we will now be operating two of the largest prisons in the Southern Hemisphere. At full year, I shared our win of the Justice Transport Services contract in Australia, and having recently visited the operation and met with both our colleagues and the customer, I'm really pleased that that contract has mobilized so successfully. Momentum has continued in the first half, resulting in more than GBP 400 million of awards across the justice business. For me, the wins at Acacia in Western Australia, Adelaide Remand Center, and now Christchurch Men's Prison in New Zealand are about much more than contract value.

Anthony Kirby
Group Chief Executive at Serco

They demonstrate the strength of our customer relationships, the quality of our operational delivery, and importantly, the actions that we've taken over recent years translating into improved results. Across all our core markets, the structural drivers we've discussed today remain firmly in place. We've deliberately positioned Serco for success with leading positions in attractive government services markets across the geographies in which we're both proud and are passionate to serve and operate. At the same time, we've simplified both our sector and divisional structures, creating a more focused, competitive, and agile business to achieve our growth ambitions over the long term. With that, let me just leave you with a few key messages. We've had another good first half performance. Revenue growth, profit, and margin progression underpinned by strong cash generation. Importantly, that performance has not been driven by a single contract, market, or initiative.

Anthony Kirby
Group Chief Executive at Serco

It reflects the strength of the business that we have built and the quality of the execution across the group over many years. We've also continued to make good progress against our strategic priorities of growth, competitiveness, and operational excellence. Strong retention rates, a growing pipeline, a leaner, more efficient organization support our confidence against our 2026 guidance. At the same time, our customers continue to face increasingly complex environments and growing demand. As a result, the need for trusted partners like us that can deliver more and better for less remains. We stand ready to support them in that endeavor, and that gives me confidence in the opportunities ahead, confidence in our ability to continue to execute our strategy, and confidence that Serco is well-positioned to deliver safe, sustainable, long-term value for our customers, our colleagues, and our shareholders.

Anthony Kirby
Group Chief Executive at Serco

Thank you very much for listening so intently, and Mark and I will now take some questions. If you just say who you are and where you're from, put your hand up, a microphone should be with you.

David Brockton
Analyst at Deutsche Numis

Good morning. It's David Brockton from Deutsche Numis.

Anthony Kirby
Group Chief Executive at Serco

I didn't say it was going to work, but I did say we'll come to you. Could we get that? Can I get that in?

David Brockton
Analyst at Deutsche Numis

Yeah. Working? No. I'll shout.

Anthony Kirby
Group Chief Executive at Serco

Shout.

David Brockton
Analyst at Deutsche Numis

It's David Brockton from Deutsche Numis. Can I ask two, please? I think it is working now. Firstly, in respect of the U.S. procurement cycle, is your sense that we need to wait for the midterms to be out of the way before that market now fully opens up? I guess you gave a sort of somewhat non-committal response in terms of the recent levels of activity you're seeing there. The second question, in respect of the buyback, should we infer from that there is low likelihood that there's going to be any bolt-ons in the imminent future? Can you talk about what that pipeline does look like?

Anthony Kirby
Group Chief Executive at Serco

Shall I take the first one and you take the second one? Okay. In terms of the procurement environment in the U.S., we are seeing some decisions now starting to be made. There were a number of protests awaiting decision which have now come through in terms of decisions. CMS CERT, as an example, was protested. We've seen that move along. I think we anticipate the procurement environment becoming slightly better as we move through the second half and into the first half of 2027. We are also mindful the midterms are approaching in November. We remain confident. What I would draw your attention to is where decisions are being made. Our retention rates on current business are as strong as they've ever been, and also our win rates on new business decisions are also keeping pace with where they've been over the last three years.

Anthony Kirby
Group Chief Executive at Serco

Where decisions are being made, we're still fortunate enough to win our fair share of both new and retention businesses, and we will look to see what happens over the second half of the year. The point I would just make is that we've got about GBP 3.5 billion, GBP 3.2 billion actually, of awards awaiting decision submitted. The final point I would make is that our 2026 guidance doesn't rely on the movement of the U.S. procurement framework.

Mark Reid
CFO at Serco

Yeah, David, thank you for the question. Maybe first of all, I'll start off with really great first half performance. Left the balance sheet in a great position. I think often get this question in terms of our capital allocation strategy. I think it's very sound, I'm very pleased with it, and I think we've been very consistent with it. We found ourselves in a very strong position first half. I think consistently, we thought it was the right thing to do to return the additional buyback. That being said, we're still in a very strong position in terms of the free cash flow that we'll generate in the second half of the year. The balance sheet still gives us optionality, right? We've still got capacity.

Mark Reid
CFO at Serco

In terms of where we are with M&A, I think Anthony and I are spending, I'd say, more time on that. We've put a bit more resource specifically in some of the regions where we thought strategically that makes more sense. We're working fast, but you know how these things are. It's a bit more art than science about when these things land. We'll see and be assured, you'll be first to know when we've got something buttoned down. We're working vigorously towards evaluating the right bolt-on acquisitions.

David Brockton
Analyst at Deutsche Numis

Right.

Mark Reid
CFO at Serco

We've got a great balance sheet to help that.

David Brockton
Analyst at Deutsche Numis

I hope we'll find out at the same time, thank you.

Chris Bamberry
Chris Bamberry
Analyst at Peel Hunt

Good morning, Chris Bamberry. Peel Hunt. A couple of questions. You mentioned that you expect to see an increase in the U.K. pipeline in the second half. Could you just give us a flavor of some of the opportunities that might come in then?

Anthony Kirby
Group Chief Executive at Serco

Yeah.

Chris Bamberry
Chris Bamberry
Analyst at Peel Hunt

Secondly, you also talked about within the margin about the increasing complexity of some of the work you're doing. Is that primarily defence, or could you give us some examples of other areas as well? Thank you.

Anthony Kirby
Group Chief Executive at Serco

Yeah. Do you want to take the first one and I'll take the second one?

Mark Reid
CFO at Serco

Yeah, sure. I mean, I think Chris, we continue to see strong demand for our services. I think that's been clear. I think we've got some nice opportunities from defence on the facility side primarily. Equally on justice, again, we've got some nice opportunities coming through in the U.K. Again, we feel fantastic first half performance. We'll see that flow through to the second half on U.K. As I said, we'll expect to continue the strength in both justice and defence pipeline as we go into the second half of the year.

Anthony Kirby
Group Chief Executive at Serco

Your second question, Chris, in terms of higher-value services, if you look at the services that we're now delivering, complex defence support services, asset management and maintenance on vessels. The contract we'd won with the Army for those 500 vessels, again, is moving us up the complex chain, which generally derives a greater value. In terms of the things that we see in the pipeline, they are weighted more to defence. I think 60% of our pipeline is in defence and in North America, which represents 60% of the total group, 75%, 80% of that is also in defence. We see higher-value, more complex services, but also in things like our complex case management businesses in citizen services, as well as our electronic monitoring contract in the U.K. and elsewhere around the world.

Chris Bamberry
Chris Bamberry
Analyst at Peel Hunt

Thank you.

Analyst at Citi

Thank you very much. Arthur from Citi. First one from me, just wondered what the environment was like now that Andy Burnham has taken over. In terms of contract adjudications, is that all kind of going to plan? Within that, just what's the government's ability to break U.K. migration and what's the mood music coming out of that? Second question, obviously the margin in the U.K. over 6%, that's your sort of group upper end of guide. How much better do you think this could get in a sort of blue sky scenario? How much of it's to do with sort of management action, how much to do with the business mix improving? Thank you.

Mark Reid
CFO at Serco

Do you mind?

Anthony Kirby
Group Chief Executive at Serco

Should you do the first?

Mark Reid
CFO at Serco

Yeah, sure.

Anthony Kirby
Group Chief Executive at Serco

I'm joking. Let me take the U.K. political landscape, and then Mark can take the margin question. Look, this is a new government with new secretaries of state appointed. The point I would make rather robustly, Arthur, is that we've worked in the U.K. for over 60 years with many different parties of all political persuasions with different policy outcomes. We deliver complex mission-critical services. We're not in the area of particularly security or cleaning without that being a wraparound or the contract. First and foremost, we are operating critical mission important services. Look, we're always aligned to helping the government customer of the day deliver their policy objectives. If you look at the announcement that was made only yesterday actually by the Cabinet Office, which we were proud to support, the increase in social value scoring in contracts.

Anthony Kirby
Group Chief Executive at Serco

I'm really pleased about that because that's something that Serco holds dear, in terms of our social impact that we have in the communities that we're proud to operate in. Fundamentally, that moving up to 20% rather than 10% of the scoring criteria now, I welcome. We're doing very well in that under the current contracts.

Anthony Kirby
Group Chief Executive at Serco

As we move forward, our ability to showcase what we do to help socioeconomic disadvantaged individuals into career paths, what we do with our work with veterans and reservists, what we do with people with experience of homelessness, et cetera, is something that we hold dear. Overall, the structural drivers and the structural demand for our services remain. Look, like I say, we employ just under 30,000 people in the U.K. We're very proud of the work that we do, and we continue to expect to deliver those as we move forward.

Mark Reid
CFO at Serco

On the U.K. margin, I think we're particularly pleased with that given there are various puts and takes in there. I think we've highlighted the Royal Navy, good progress on that. Electronic monitoring is one specifically where we've seen great progress. The team have really driven operational improvements, not only from a margin perspective, but also a customer outcome perspective. That's very pleasing. I think obviously we've still got U.K. immigration, which will continue to be a headwind. Obviously National Insurance in half one was a headwind, which will lap itself into half two. I think without predicting exactly the margin, I think those are the puts and takes, but we'll continue to see positive progress on electronic monitoring and on the Royal Navy. National Insurance will drop off, we'll see how immigration continue its progress into the second half.

Allen Wells
Allen Wells
Analyst at Jefferies

Hi, Allen Wells from Jefferies. Maybe just kind of following on from Arthur's question on the margin to start with, obviously 6.2% at the half year. It's ahead of the 5%-6% kind of range that you guys have talked about. When we think about the group margin and the building blocks from here, could you maybe kind of split out where the risks and opportunities, how much is kind of cost out at a group level, how much is contract based opportunity—

Mark Reid
CFO at Serco

Yeah.

Allen Wells
Allen Wells
Analyst at Jefferies

—maybe where some of the headwinds are on margin—

Mark Reid
CFO at Serco

Sure.

Allen Wells
Allen Wells
Analyst at Jefferies

—if you think about where sustainable margins—

Mark Reid
CFO at Serco

Yeah.

Allen Wells
Allen Wells
Analyst at Jefferies

—start to sit. That's the first question. Secondly, on the U.K., the justice side, obviously a lot of noise in the news over the past couple of weeks on early release. Would be just interesting on kind of the tagging contract that you have. You inherited a pretty tough situation when you pitched that contract out. You've made great progress, but where are we in terms of capabilities, and capacity, I guess, in that contract to accept those additional volumes? Finally, a very quick one just on CMS in North America, the legacy contract there. Obviously you talked about volumes coming back. Just the shape of that for our modeling purposes, the shape of that over the next few quarters would be really helpful. Thank you.

Anthony Kirby
Group Chief Executive at Serco

Okay. Do you want to carry on? Do you want to do margin?

Mark Reid
CFO at Serco

Yeah, let me—

Anthony Kirby
Group Chief Executive at Serco

I'll do.

Mark Reid
CFO at Serco

—continue with margin because it's kind of very similar component parts when you start talking about groups. I think, again, very happy, 6.2% I think is a decade high, so we're very pleased with that. The overall geographical mix is helping, so I think that's useful. If I look at North America, again, very nice margin in the first half, so that's pleasing again. There's a real culture of continuing focus on driving in-contract profitability, and that's throughout the organization. That will continue to be a tailwind where we execute positively there. Defence and justice in the U.K. will continue in the second half and continue to be supportive in terms of raw margin from a group perspective. You've got this immigration effect. Again, we were slightly better from primarily a volumes perspective, mix perspective in the first half.

Mark Reid
CFO at Serco

That will continue to be a headwind as we go into the second half and then clearly into 2027. National Insurance, as I said, was a large chunky number in half one that starts to lap itself. Maybe final on corporate costs, very pleased from a CFO seat of the performance in half one on corporate costs. We continue to have a very thorough thought process in terms of managing costs. We managed, again, across workforce optimization in terms of third-party spend. That plays out well. There'll be some time in the second half, so we shouldn't expect the costs to flow fully through into the second half because there's some small IT spend in the second half, it's just phasing.

Mark Reid
CFO at Serco

Overall, I think again, and I'm sure the question's going to come in terms of where does that look longer term, I think the business is performing. We've got very good tailwinds in terms of the geographical mix, in terms of our defence, in terms of pipeline makeup there. There's some real nice structural elements of our business. Clearly, we've also got some headwinds in terms of immigration. We'll come back and let you know what we think about that in due course once we've probably got through my first budget. I'll have a better view of what that really looks like.

Anthony Kirby
Group Chief Executive at Serco

Thanks, Mark. Allen, just to answer your other two questions. In terms of CMS, the phasing that we see moving forward is no different than the historical trends that we've seen.

Anthony Kirby
Group Chief Executive at Serco

We don't give numbers at this point in the year. We've obviously got to go through the budgeting process. H1 to H2, we're seeing those trends continue to be as we've seen historically. In terms of U.K. justice and electronic monitoring, I reviewed this contract probably 10 days ago. We were obviously talking about the government's need for the early release scheme to ease the capacity issues across the U.K. penal estate. Fundamentally, we are monitoring at the moment record numbers of people in the community. I think we're up to about 28,000 people per day that we're monitoring. We have the capacity, the resources, and the capability to meet the government's demands. As we move across the next couple of years, we expect those numbers, as the MOJ themselves have confirmed, to get into the mid-30,000s as we move over the coming years.

Anthony Kirby
Group Chief Executive at Serco

I was in the contract a couple of weeks ago, actually. I spent the day out with a team fitting the tags to device wearers. Actually, I'm really proud of what we've done to get that contract to where it is. Every KPI bar none is green, and every KPI has been green for a significantly sustained period of time over the last couple of months. I'm exceptionally proud of it. This is where we come into our own, where we stand up and we help customers deliver those critical services to help them solve a complex problem that they see in front of them.

James Rose
James Rose
Analyst at Barclays

Hi, it's James Rose from Barclays. I've got two, please. First is on productivity. I think that's been a significant contributor to profits over the last few years. Mark, when you look across the group, how big a pool of opportunity do you think remains in that spectrum? The second one is on how contracts may be changing over time. I think the U.S. is trying to push towards more fixed-price contracts. U.K., sort of to be determined, but potentially a bit more outcome-based. How would you assess that framework in terms of the risks and potentially opportunities for Serco?

Anthony Kirby
Group Chief Executive at Serco

You want to do the first one?

Mark Reid
CFO at Serco

Yeah, I'll take the first one. As I stated in my notes, look, I think you probably expect me to say that first six months in. I think there's a real DNA of driving productivity improvements right across the contracts, across the regions. That is in the DNA of the company. I think the example you used in terms of electronic monitoring is just one of those examples. If you take that practice is there, we're definitely going to continue to focus on that and take that good practice. If you look across our cost base, it's a significant number. I think it's GBP 4 billion or GBP 4.5 billion. There continues to be pools of spend to go against, and so you expect me to continue to look at that and push to accelerate those benefits. That's where I am.

Anthony Kirby
Group Chief Executive at Serco

Thanks for the question. I think what I would say is our current landscape of contracts in the U.S. is probably around 50% fixed-priced already. We don't have a huge proportion of the business, or it's weighted more favorably to cost plus. We've got experience of operating in fixed-priced environments. Interestingly, that's generally how the rest of the world currently operates in terms of fixed-price contracts. There's very few cost plus around the rest of the world. We have the skill and the capability within the organization to do that. Actually, we see the opportunity to help the customer reduce their cost through fixed-price contract as a good thing.

Anthony Kirby
Group Chief Executive at Serco

Like I say, we've got some very good examples of where we've been able to help the customer reduce their overall costs, whilst we're also able to walk the margin up slightly in those fixed-priced contracts. We're well-versed in that area.

Alex Smith
Alex Smith
Analyst at Berenberg

Alex Smith from Berenberg. Just two from me. Number one on MT&S, almost fully integrated. One of the objectives there was to cross-sell and upsell that new capability into the U.S., but also into Europe. Update on that and potential plans. Number two, just on U.K. immigration. You mentioned volume slightly lower, as you previously guided in July. You're approaching the 2029 end of the contract. There's kind of discussions with the government, how that contract's looking. I guess that rebid process begins to start into next year. Any color there would be great.

Anthony Kirby
Group Chief Executive at Serco

In terms of MT&S, we're already starting now. That's been very well integrated into the wider Serco portfolio. We're working with them on a number of opportunities, quite sizable opportunities, both within the U.S. and, Alex, to your point, more broadly. There's an opportunity in Canada that we would probably not have been able to bid for had we not have made the acquisition of MT&S. Also, MT&S supported a recent win in defence in New Zealand using some of that capability. We're already starting to see some positive green shoots of being able to take that capability more globally. In terms of immigration, Mark can touch on the numbers. In terms of the 2029 contract, that's still the case. The contract is up for renewal in 2029.

Anthony Kirby
Group Chief Executive at Serco

The customer had previously come out and suggested one contractual mechanism for the future services from 2029 onwards. That's changed ever so slightly now. We expect to be able to be absolutely, as a strategic partner to the Home Office, bidding for that contract retention in 2029. The shape of it may be slightly different to what it is today, fundamentally, I think the customer knows that having trusted partners like us, where they're able to publicly control the contract but have it privately delivered, is something where we think our skills and expertise will continue to be utilized by the Home Office.

Mark Reid
CFO at Serco

On numbers, like you were saying, I think our customer's happy we're supporting them come out of hotel. The hotel mix is down. Overall volumes is slightly down. We're around 40,000. That's not huge. The mix is moving more towards dispersed accommodation. In terms of overall financial effect of that, again, I think we talked about GBP 100 million headwind. That's not that size. It's probably more in the 60s at this point. We've still got the second half to go, it's certainly attriting at a slightly lower pace than what we had expected.

Jane Sparrow
Jane Sparrow
Analyst at JPMorgan

Jane Sparrow from JPMorgan. Just one, going back to the Cabinet Office announcement. You talked about what it means from a relationship with government perspective. Could you also talk about what it means from a competitive environment perspective? Does that 20% increase in social value and removing a lot of the other criteria, lower the barrier to entry for some smaller competitors?

Anthony Kirby
Group Chief Executive at Serco

Thanks for the question, Jane. I don't think it reduces the barrier to entry for other competitors. We work really well, actually, in our supply chain with SMEs. We see this as an opportunity to work with more SMEs that can deliver some of those services where we think that others would be best placed under a prime relationship. Fundamentally, I don't see the barriers reducing. Some of the things that will no longer be part of the scoring criteria, we may still choose to do as an organization anyway. I don't think that that's going to be impactful. This is all about skills and job creation. I think I made the point, previous session, that around 90% of our population that work in our contracts come from within the locality. We've got some very strong track record, [640] apprentices.

Anthony Kirby
Group Chief Executive at Serco

We have many people on master degree programs and apprenticeships that we have within the organization. This is about still delivering complex government services, but the focus of what the government wants out of those locally delivered services is slightly altered in the scoring mechanism. What I just hope that we can give confidence on is that we are very good at this already. Our passion and our determination to make sure that we deliver those socio-economic advantages, both in skills and jobs locally, absolutely is going to remain at the core. Any other questions from the room before we ask online? Somebody's hopefully going to appear from speaker in a minute.

Operator

If you would like to ask a question and are dialed into the conference line, please press star followed by the number one on your telephone keypad. Once again, if you are dialed into the conference and would like to ask a question, please press star followed by the number one on your telephone keypad. It seems that we have no questions on the conference line. I will now hand over to the management for closing remarks.

Anthony Kirby
Group Chief Executive at Serco

Fantastic. Thank you all very much. In our continued pursuit of efficiency, we've managed to finish spot on the time. That was very well done, both from my colleague here and from the audience questions. Thank you all very much. We will be around for any other individual questions that you may wish to ask. We wish you a very safe day and a good rest of your week. Thank you all.

Analysts
    • Anthony Kirby
      Group Chief Executive at Serco
    • Mark Reid
      CFO at Serco
    • David Brockton
      Analyst at Deutsche Numis
    • Chris Bamberry
      Analyst at Peel Hunt
    • Analyst at Citi
    • Allen Wells
      Analyst at Jefferies
    • James Rose
      Analyst at Barclays
    • Alex Smith
      Analyst at Berenberg
    • Jane Sparrow
      Analyst at JPMorgan
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